1) P, Q and Rare running a partnership firm. P is entitled to a commission of 5% of net profit. Pass
the necessary journal entry/entries for recording this commission in the book if profit for the
year amounted to Rs.5,00,000.
Answers
The following rectifying journal entries needs to be passed:-
P's capital A/c Dr. 60,000
Q's capital A/c Dr. 60,000
R's capital A/c Dr. 60,000
To Profit and loss Appropriation A/c 1,80,000
(Being the share of profit wrongly distributed reversed)
Profit and Loss Adjustment A/c Dr. 36,000
To R's capital A/c 36,000
(Being remuneration credited)
Profit and loss Adjustment A/c Dr. 30,000
To P's capital A/c(3,00,000*5%) 15,000
To Q's capital A/c(1,50,000*5%) 7,500
To R's capital A/c(1,50,000*5%) 7,500
(Being interest on capital credited to partners)
Profit and loss Adjustment A/c Dr. 1,14,000
To P's capital A/c 45,600
To Q's capital A/c 45,600
To R's capital A/c 22,800
(Being the divisible profit credited to partners)
Hope this will help you.
Commission A/c. Dr. 25,000
To P's Capital A/c 25,000
Explanation:-
The Commission is an expense for the business in this entry, thus it has to be debited. There is an increase in P's Capital account, hence it implies that there is an increase in liability for the company, thus it has to be credited.
Following is the journal entry in the books of P , Q and R for recording this commission:-
Commission A/c. Dr. 25,000
To P's Capital A/c 25,000
We were given:-
Commission =5%
Net profit for the year = Rs. 5,00,000
So, the amount of commission entitled to P:-
= 5% of net profit
= 5% of 5,00,000
=25,000